Web Posted: 04/16/2005 12:00 AM CDT

Rosemary Barnes
Express-News Business Writer

If and when the housing bubble bursts, San Antonio homeowners might feel a slight quiver at the most. They’ll be buffered from any big boom by the stability of area home values and prices in recent years.

When Federal Reserve Chairman Alan Greenspan talks about those “certain areas” of the nation where he sees unstable housing price bubbles, he’s not referring to San Antonio or other Texas urban areas.

San Antonio area home values rose about 4.3 percent in 2004, while state prices averaged a 3.9 percent increase. Those are modest increases compared with the 11.2 percent average jump on the national scale.

“There’s been a limited amount of price appreciation going on in Texas compared to the nation,” said Mark Dotzour, chief economist of the Texas A&M University Real Estate Center. “There’s been no bubble in the housing markets of any city in Texas.”

High double-digit increases in states such as California, Nevada, New York and New Jersey skew the national average.

The median home price in Los Angeles, now $446,400, is up 54 percent over the past two years. In California’s Riverside and San Bernardino counties, the median price of $296,000 has increased 69 percent over the same time period.

The same house in San Antonio sold for $144,000 in 2004, a 16 percent increase from 2001, when it went for $124,200.

The national mortgage debt now stands at record levels, having risen $1 trillion last year alone, and dwarfing other types of consumer debt like credit cards.

Taking advantage of rising property values, record numbers of homeowners are turning to home equity loans as a source of ready cash.

The amount Americans owe on home equity lines of credit jumped to about $491 billion at the end of 2004, up 42 percent from a year earlier, and more than triple the amount at the end of 2000. Home equity lines are usually tied to the prime rate, which in turn moves in lockstep with the federal funds rate, which the Federal Reserve has boosted seven times since last June.

Mortgage rates are still relatively low: about 6 percent for a 30-year fixed loan, according to financing firm Freddie Mac. But that’s up almost a half a percentage point from just two months ago, and more increases are expected throughout the year.

Higher interest rates will not only raise monthly payments on millions of loans, they also could deter many homeowners from refinancing. Without that ready source of cash, there will be less money to spend on everything from clothing to appliances.

Rising rates should start to hit consumer spending in a big way by this summer, according to economists. “We definitely have to figure that once tax filing season is done and tax refunds are cashed, we do expect consumer spending will slow down in the second half of this year,” said John Silvia, chief economist for Wachovia Securities.

“I don’t see any way to fudge that (higher financing costs). You’re not getting the employment gains or wage and income gains to offset that.”

Soaring home values in some states have pushed the wealth of American households up 9 percent to a record high of $49 trillion at the end of 2004.

The Fed has estimated that home values have doubled from $8 trillion to $16 trillion since 1996, matching the growth of mortgage debt, which has doubled from $3.5 trillion to $7 trillion in the same time frame.

At the same time, mortgage debt rose as homebuyers purchased expensive houses or tapped into their growing wealth through home sales, cash-out refinancings and home-equity loans.

Housing has become the primary source of wealth for Americans. But that could all change when the real estate bubbles start bursting, dragging down house prices.

Greenspan has observed that Americans in some urban areas where home prices are outstretched may experience a reversal of wealth gains.

Consumer spending since 2000 has been fed by the “housing wealth effect” created by rising values and prices.

The housing wealth effect is significantly more powerful than the wealth effect associated with rising stock prices. That’s because housing wealth is much more broadly distributed across income levels than stock wealth and its impact on consumer spending is much more immediate.

Greenspan would like to see consumer spending out of household wealth slow down because it has dissuaded too many Americans from saving their money. His campaign to raise interest rates over the last year has been designed in large measure to cool an overheated housing market.

Now that interest rates are on the rise, many economists have predicted that the time of skyrocketing house prices is nearing an end. So far, there has been no sign of a slowdown.

Housing prices have been on the rise since the stock market bubble popped in 2000. Likewise, consumer spending has been increasing.

Escalating real estate prices and low interest rates made it ideal for homeowners to convert those higher values into ready cash by refinancing.

Nowhere is the wealth effect more evident than in California. Flush with home equity made from huge price leaps throughout the state, Californians are driving up prices on homes in Oregon, Arizona and Nevada.

Half of the private-sector jobs created in California in the last two years are connected in some way to real estate. Meanwhile, property values in the last four years have swelled $1.7 trillion, the equivalent of about 35 percent of the total personal income in the state since 2001.

This sharp increase in home equity has spurred consumer spending that, in turn, has fueled more economic growth.

“We have an economy that’s rolling along on the basis of a false sense of wealth,” said Christopher Thornberg, a senior economist with the UCLA Anderson Forecast team.

Some Californians are relocating, but in many cases they’re buying a second home, typically paying for it with cash-out refinancing or a home equity line of credit.

The prices in California are so high for the typical house that an owner can take out $200,000 from the home equity and pay cash for a house in Arizona, where prices have increased 20 percent over the last three months.

Some are buying for personal use, but many others are buying for speculation.

Some are house-rich and enthusiastic about diversifying their real estate portfolios. Others, priced out of their own communities, are leaving California in search of more affordable housing.

Few economists believe California’s house prices can continue to appreciate so rapidly. They’re predicting the prices will flatten in Southern California, with small declines in some areas of the state.

According to mortgage insurer PMI Group’s risk index of housing markets, six California metropolitan areas rank among the 10 markets most likely to see price declines over the next two years.

“There is this ‘Go East’ mentality in California,” said William Frey, a demographer with the Brookings Institution, citing U.S. Census statistics showing a net loss of domestic residents. “Even people who have lived there most of their lives, when it comes time to retire are cashing out and leaving.”

The fear is that a bursting bubble will chill California’s economic growth and jeopardize employment, which is being driven by the wealth effect.

California’s housing boom has created jobs linked directly or indirectly to housing development and sales.

“That will slow down housing construction and cause a big income shock to the economy,” Thornberg said. “And in the midst of a housing slowdown, the markets in California where housing prices and home building are strongest will be hit the hardest.”

Thornberg believes most of 2005 will continue to bring solid economic growth in California. But as housing slows, California’s economy could wobble and weaken by late 2005 or in early 2006.

“You will see construction folks not having as many houses to build and losing their jobs, you will see the mortgage bankers and loan officers losing their jobs,” Thornberg said. “Indirectly, there will be a reduction in consumer spending, which means retail sales, car sales will take a hit.”

Web Posted: 04/10/2005 12:00 AM CDT

Vicki Vaughan
Express-News Business Writer

San Antonio has long been known for its stable work force and its ability to dodge the roller-coaster ride of boom-and-bust business cycles.

But a hotbed of commercial real estate construction? The city hasn’t earned many plaudits there.

That’s changing in 2005.

The city’s healthy economy, including job growth and strong residential housing starts, has permanently altered others’ perceptions of San Antonio. From the 1.8 million-square-foot, $800 million Toyota plant that’s rising from ranchland on the South Side to the swanky Shops at La Cantera and the PGA Tour resort in the north, the city is experiencing a boom in commercial and retail construction.

The real estate maxim that housing follows jobs and retail follows rooftops is being played out across town.

In 2004, San Antonio added about 15,000 net new jobs. That growth is expected to continue as Toyota’s hiring picks up this year and corporations eye San Antonio as a possible site for expansion. Seattle-based Washington Mutual, a financial services giant, is the latest company considering San Antonio for what’s said to be a regional center.

Last year, San Antonio ranked 22nd in the nation in single-family permits for 12,700 houses. The city also set a record for home sales for the fourth consecutive year.

“We’re enjoying a very strong market,” said Phil Telisak, senior vice president at the Weitzman Group, a regional commercial real estate firm. “It’s due to the vibrancy of the San Antonio economy.”

In contrast to what happened to commercial real estate in the mid-1980s, when the oil and real estate bust combined with overbuilding to produce a toxic mix, “this time, I don’t think anything has been overdone. It has been an orderly expansion,” Telisak said.

Ernest Brown, managing director of Grubb & Ellis Co.’s San Antonio office, agrees: “It’s the most rational growth I’ve ever seen. Growth is happening because there is a demand. You don’t see apartments and retail being built without pre-leasing.”

San Antonio’s hottest areas for growth continue to be the north and the northwest, but the far West Side is the boom area of the future.

The East Side has about 65 percent of the city’s industrial space and thus isn’t entirely suitable for housing. In the northeast, The Forum at Olympia Parkway, a massive shopping center, has thrived since it opened in 2000. But now traffic congestion on Interstate 35 has stymied growth somewhat.

On the South Side, it will take time to attract more commercial and housing development, experts say, even with the boost from Toyota. In the southeast, Brooks City-Base, at Interstate 37 and S.E. Military Drive, sold land that’s now City-Base Landing Shopping Center. Here, Wal-Mart plans a supercenter and pharmaceutical maker DPT Laboratories plans an expansion.

For now, perhaps the city’s highest-profile project is the Shops at La Cantera, a 1.2 million-square-foot retail center under construction at the northwest corner of Loop 1604 and Interstate 10. The Weitzman Group defines the complex as a super-regional mall, drawing tenants from outside South Texas.

The project will introduce two anchor tenants new to San Antonio, Neiman Marcus and Nordstrom, as well as Dillard’s and Foley’s. And just last week, famed Fifth Avenue jeweler Tiffany & Co. announced it will build a 6,000-square-foot store at the mall.

“People will be astonished at what’s to come,” said Bob Rubenkonig of Chicago-based General Growth Properties, the project’s developer. “It says a lot about San Antonio. We’re going to open up 90 percent leased, and that’s unheard of.”

The 100-acre Shops at La Cantera is on track for a Sept. 16 opening. A second phase of 60 acres will open in late 2007.

At I-10 and La Cantera Parkway is the Rim, formerly North Rim Market. It is to include megastore Bass Pro Shops, along with restaurants and other retailers. A third million-square-foot retail complex, Regal Hills, is planned for the southeast corner of 1604 and I-10.

Investors and developers “are finally looking at the Mexican national traffic,” said Sandra Rogers, senior associate at REOC Partners in San Antonio. “They’re finally realizing how significant it really is.”

And there’s notable local wealth, too. Within a mile of Loop 1604 and I-10, the average household income is $285,364, by far the city’s highest, according to REOC Partners.

The next most affluent area is at Loop 1604 and Stone Oak Parkway, which continues to be a favored region for development because its average household income is $102,331.

“Stone Oak is just hot,” Rogers said. “I really compare it to another Alamo Heights. People who live there want services there — and they’ve got that.”

The Stone Oak Parkway area has for several years been one of the area’s most robust for housing, and services have followed, such as Baptist Health Systems’ North Central Baptist Hospital, which was doubled in size at a cost of more than $100 million.

“We believe the North Side will continue to grow, especially at Stone Oak and Bulverde,” said Kent Wallace, chief executive officer of Baptist Health Care Systems.

Methodist Hospital also likes the area. The company has bought about 38 acres in the area for a possible new hospital.

But even as Stone Oak continues to grow, developers are turning their attention to the west, because growth on the North Side is reaching its limits. The 28,000-acre Camp Bullis and the 4,000-acre Camp Stanley, federal installations, can’t be touched, and development in the north also is constricted by regulations governing what’s built over the Edwards Aquifer recharge zone.

“On the west, you’re off the aquifer, so building costs are less, yet it isn’t flat, so the topography is interesting,” said Brown of Grubb & Ellis. “And that’s where jobs are growing.”

At Westover Hills, which lies off Texas 151, “you have 23,000 or so white-collar jobs,” Brown said. “That adds up to tremendous growth.”

Brown expects commercial development in the west to occur along Loop 1604 and Loop 410. But outside 1604, about 65,000 houses are planned, enough to add population equivalent to present-day Corpus Christi, he said.

Not everyone thinks this is good. “It’s perfectly consistent with the way the city has grown since the 1950s,” said Char Miller, professor of history and urban studies at Trinity University. “Find open land and develop.” Those who move to the west won’t escape traffic jams, because “you’re just taking them with you.”

Miller’s colleague, Richard Butler, a Trinity professor of economics and urban studies, said it’s important not to let growth get ahead of infrastructure. “Look at Austin,” Butler said. “They grew like crazy, so they didn’t plan for transportation, for water.”

A key will be continued job growth. Butler praised Westover Hills, Marty Wender’s 3,500-acre development that is home to campus-styled corporate complexes, for its planning and light density.

“If you want to keep attracting businesses out there,” Butler said, “you’ll need more that’s master-planned like Westover Hills.”

At Westover Hills, Wender said a number of present tenants are planning to expand, including World Savings & Loan Association. It’s Westover Hills’ biggest employer and is planning its ninth structure; it has almost 2,800 employees and projects 4,000.

QVC Network Inc. has additional land for expansion, as does the Capital Group Cos. Inc. Hartford Insurance plans to double in size, with 450 employees projected. The development recently got another new tenant in Baptist Hospital System, which announced last month it plans a 40-acre campus to be anchored by a three-story medical office building.

Also, Methodist Healthcare System officials have taken an option to buy land on the far West Side near Loop 1604 and Culebra Road. The company has said it wants to lock in the land prices now.

All of San Antonio will benefit when a $340.6 million face-lift of San Antonio International Airport is completed as part of a five-year capital improvement plan.

Plans call for the demolition of the 1947-era Terminal 2 and the construction of a glossy, $51 million Terminal B, along with a two-tier roadway expansion that will make it easier to drop off and pick up passengers. A shortage of parking will be eased with a $40 million parking garage that will boost the number of spaces by 50 percent to about 9,000.

The new terminal and parking garage should be completed by late 2007 or early 2008, spokesman David Hebert said.

“We’ll never be a hub,” developer Wender said. “We’re not going to solve that problem.” But he pointed out that tourists “love our airport” because it’s a quick and inexpensive cab ride from downtown, and the updates will give first-time visitors a better first impression.

The prospect of Toyota and high-end retailers coming to town has perhaps drawn attention away from the city’s rapidly expanding public universities.

At UTSA’s main campus, an $83.7 million Biotechnology, Science and Engineering Building will open in the fall, said Charles Lampe, director of facilities planning. Other projects planned or underway include a $10.5 million research lab, a $5.5 million dining hall and a $9.45 million parking garage.

Westover Hills also is home to one of the fastest-growing community colleges in the nation. Northwest Vista College has more than 9,000 students and is growing so quickly that “we have about half of our classes being taught in portables right now,” said Jeff Hassmann, assistant to the president. “We’re at the point where we can’t grow unless we have more facilities.”

An expansion would require a bond issue, but none is yet planned. The college’s leaders envision an addition of 336,000 square feet costing $86.8 million.

On the South Side, Texas A&M University plans to build a campus and business leaders are enthusiastic.

“I’m far more excited about the Texas A&M campus than I am about Toyota,” Grubb & Ellis’ Brown said.

He noted that Austin’s explosive growth has been credited in part to the presence of the University of Texas at Austin; as San Antonio’s colleges grow, so will its ability to attract employers.

“Businesses come to San Antonio for labor and skilled labor above all,” Brown said. “And universities are all about skilled labor.”